Commodities lead Wall Street down

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US stocks almost erased a three-day rally yesterday as energy and commodity shares sank, feeding worries over the market’s ability to stay on an upward path.

The second major breakdown in commodities in a week fuelled selling in other risky assets, including stocks. A stronger dollar and data showing a rise in US fuel supplies sent crude oil prices down more than five per cent, and the Standard & Poor’s energy index slid three per cent.

“A lot of money is tied up into things like exchange-traded funds and mutual funds that track a broad array of stocks and not just commodities. Some of this could be a shift out of equities in general, but especially energy and commodities,” said Bryant Evans, investment adviser and portfolio manager at Cozad Asset Management in Champaign, Illinois.

About five stocks fell for every one that rose on the New York Stock Exchange, a broad exodus signalling investors saw little value in most industries.

The Energy Select Sector SPDR Fund fell 2.9 per cent to $74.28 while the US oil fund lost 4.2 per cent to $39.35 and the iShares silver exchange-traded fund dropped 8.3 per cent at $34.39.

Worries about global demand have fed losses in energy and materials shares. The S&P energy sector is now down 7.8 per cent since the start of the month.

In a sign of weakness, the S&P 500 broke below 1,340, a key technical level, and some analysts said a close below 1,330 would be bearish for the market.

The Dow Jones industrial average was down 130.33 points, or 1.02 per cent, at 12,630.03. The S&P 500 Index was down 15.08 points, or 1.11 per cent, at 1,342.08. The Nasdaq Composite Index was down 26.83 points, or 0.93 per cent, at 2,845.06.

The 1,340 level roughly coincides with the 20-day average, which the market has closed above since April 20. If the S&P 500 closes below that average, the Bollinger bands chart shows a near-term target just above 1,300. The S&P 500 index is still up 27.9 per cent since the start of September, roughly when the market’s recent rally began.

After the market’s close, shares of Cisco dipped 2.1 per cent to $17.40 as the company reported results and warned of another weak quarter.

In the foreign exchange market, the euro dropped to a three-week low against the dollar as investors unwound risky trades in commodities and higher-yielding currencies and bought back the greenback in a flight to quality bid.